15 April 2015
Credit Market Update
Robust
Demand for New USD Offers; Malaysia to Raise USD2bn Sukuk; Hold YTLPI 10/24 MYR
REGIONAL
¨
Muted
secondary activity in APAC USD before US retail data; China 1Q15 GDP fell to
7%. Asian USD CDS premiums reversed a
downward trend, rising 2.1bps to 106bps amid new bond sales of USD3.07bn
yesterday. Overnight, the UST curve bull flattened as rates further declined
1-3bps. In the secondary market, activity was held back by new bond sales from
Chinese issuers flooding the market, although IG yields were resilient despite
the release of weaker China export data, which fell 15% YoY (consensus: 9%;
prior: 48.3%); today, China revealed GDP growth of 7% YoY (prior: 7.3%) within consensus
expectations (7%) but lower-than-expected retail sales of 10.2% YoY (consensus:
10.9%) and industrial production of 5.6% YoY (consensus: 7%). Meanwhile in the
tech space, news of Tencent CEO, Ma Huateng, cutting his stake by 10m shares
caused the company’s shares to fall 5.5%, although TENCNT 16-25s stayed firm,
tightening 1-3bps across.
¨
Robust demand
from new offers; average BTC ratios hit 8x. We noted China Communications Construction Co. (A3/NR/A-) sold
USD1.1bn PNC5s at 3.5%, 30bps inside its initial price target of 3.8%; Central
China Real Estate (Ba3/BB-/NR) priced USD300m 5NC3 notes at 8.75% (IPT:
9.125%); Formosa Plastics Corp (expected issue rating: NR/BBB+/NR)
priced USD1.0bn 10y notes at T+157bps (IPT: T+180bps); and Haitong
International Finance Holdings 2015 Ltd (expected issue rating: NR/BBB/NR)
with USD670m 5y bonds priced at T+220bps (IPT: T+245bps area). Today, the Government
of Malaysia (A3/A-/A-) is expected to sell USD2.0bn 10y and 30y Sukuk at an
IPT of T+135bps and T+185bps respectively; proceeds from the issuance will used
for redeeming USD1.25bn trust certificates due 2015 and general purposes.
¨
SORs narrow
and more active buying after uncertainty ebbs post-MAS decision. We saw keen tightening in the swap curve post-MAS
decision to stand pat, with the 3y and 5y narrowing by around 7bps to close at
1.44% and 1.78% respectively. The market was more active yesterday as there was
uncertainty over the outcome of monetary policy, with buying seen in CHEUNG and
GUOLSP while two way flows were observed in WINGTA and OLAMSP. SG’s 1Q2015 GDP
came in stronger at 2.1% (consensus: 1.7%; previous: 2.1%) while investors will
be eyeing the SG Feb Retail data to be released this afternoon (consensus: 3%;
Jan: -5.0%).
¨
MALAYSIA
¨
Thin demand
for new MGS 10/20 auction; RHB to strengthen capitalization via MYR2.5bn right
issue (see Credit Brief). In
the govvies market, the new MGS 10/20 benchmark auction received unenthusiastic
BTC of 1.78x, the lowest this year, on average yield of 3.659% as this part of
the curve probably attracted less investor base. The lukewarm demand for the
new 5y benchmark set a bearish tone to the secondary market which saw benchmark
yields inched higher, notably in the 7y-MGS (+4bps, 3.818%). On the corporate
front, trading activity were thin at MYR344m. Among the top traded were Kesturi
12/28 and Kexim 2/17, realign 5-8bps upward to 5.072% and 4.125% respectively.
TRADE IDEA: MYR
Bond(s)
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YTL
Power International Bhd (“YTLPI”) YTLPI 10/24 (RAM: AA1) (Last trade: 2-Apr;
Price: 100.23; Yield: 4.919%; 10y-MGS+ c.103bps) (Amt O/S: MYR700m)
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Comparable(s)
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Sarawak
Energy Bhd (“SEB”) SEB 7/24 (RAM: AA1) (Last trade: 3-Apr; Price: 102.16;
Yield: 4.710%; 10y-MGS+ c.82bps) (Amt O/S: MYR600m)
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Relative Value
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We reiterate our
recommendation on YTLPI 10/24 which gained 8 sen since our
reiteration on 31 March, while spread stood flat at +103. We continue to see
value in YTLPI 10/24 which offers pick-up of c.20bps over SEB 7/24. Though
YTLPI is subject to holdco risk, we view that its structural subordination is
mitigated by the strong financial profiles of the company and the YTL Group.
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Fundamentals
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YTLPI’s credit
profile is supported by the following:
1) Stable business profile. YTLPI’s key
profit generators are from its utilities assets in Singapore (Power Seraya)
and UK (Wessex Water). Each of the assets have been contributing MYR500-800m
to the Group’s PBT for the last 3 years.
2) Strong balance sheet. Supported by
huge cash and deposit balances of MYR9.6bn sufficient to cover its ST
borrowings of MYR2.8bn and almost up to 18y of maturing debt totaling
MYR9.7bn, while having net debt of MYR15bn (gearing: 2.4x, net gearing: 1.5x)
and net debt-to-EBITDA of 5x.
*All financial
figures as at Dec-14.
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